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Stocks in the company

WEAKNESSES. Without complementing the above risk analysis method with other risk computational and forecasting techniques is not very conclusive. For the other tools used in analysis may contradict and even correct the wrong impressions brought by the above risk analysis tool. B) CAPITAL ASSET PRICING MODEL. This is used to determine the risk of an investor’s stock This CAPM computation, that is based on Tabcorp ppo table above shows that the company is not performing well when contrasted with the entire industry (NZ50 index was used). STRENGHTS. First, math is pure and fixed.

Thus, CAPM is a very popular risk analysis tool. Also, CAPM uses the beta which is a very good indicator of a company’s performance. The higher the beta, the better looks in the eyes of the financial statement users especially the stockholders. WEAKNESSES. The CAPM is not that conclusive. Thus, the investor has to use other statistical tools to validate the answers shown by the CAPM. Also, the CAPM does not include the news stories as shown in SECTION C below. For, news items will surely influence the investor to either sell their stocks or to buy more stocks in the company.

News that he company was hit by

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an earthquake will surely cause the investors to think twice whether to continue holding onto their stocks or to sell them. For a company that is hit by an earthquake may have resulted to major damages in its buildings and equipment thereby causing a drop in the assets owned by the company. A drop in assets would also translate to a drop in net income. consequently, a drop in income would result to a drop in dividends that will be distributed to the stockholders on record.

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